Financial Statement Analysis Notes

Chapter 1: Introduction to Financial Statements

  • Financial statements, or enunciati finanziari, include:

    • Balance Sheet (Stato Patrimoniale)

    • Income Statement (Conto Economico)

    • Notes to the Financial Statements (Nota Integrativa)

    • Financial Reporting

  • The terms 'patrimoniale' (asset-related) and 'economico' (economic) are used in the Italian context for Balance Sheet and Income Statement, respectively. However, in international contexts, all documents fall under 'financial statements'.

  • The distinction between 'financial' and 'economic' in the Italian setting doesn't exist internationally, where all accounting falls under 'finance'.

Chapter 2: Understanding the Balance Sheet

  • Balance Sheet

    • Classifies assets and liabilities.

    • Assets.

    • Liabilities.

      • Current: Debts to be paid within 12 months.

      • Non-current: Debts to be paid after 12 months (e.g., mortgages).

    • Presents stock quantities as of a specific date. For Apple's case on September 24, 2022.

  • Key Terms:

    • Assets: 352,800,000,000

    • Liabilities: 302,100,000,000

    • Equity: 50,700,000,000

  • Ending quantities in the balance sheet refer to the amounts at the end of the period.

  • Apple's financial documents are prepared according to US GAAP (Generally Accepted Accounting Principles) which are issued by the FASB (Financial Accounting Standards Board).

  • Summary of Apple's Balance Sheet (September 24, 2022):

    • Ending Assets: 352,800,000,000

    • Ending Liabilities: 302,100,000,000

    • Ending Equity: 50,700,000,000

  • Despite high revenues (100 billion), Apple's equity is relatively low compared to its liabilities, indicating a strategy of leveraging debt.

Chapter 3: Income Statement Overview

  • Income Statement.

    • Also known as the statement of income or profit & loss statement.

    • Shows profit (utile d'esercizio) resulting from revenues exceeding expenses.

  • For Apple in 2022:

    • Profit of 100,000,000,000

  • Reflects the business income explanans viewpoint, detailing the difference between revenues and expenses.

  • The income statement explains how the company generated its income by listing revenues and expenses.

  • Top management emphasizes explaining how they achieved a revenue of 100,000,000,000.

Chapter 4: Detailed Breakdown of Apple's Income Statement

  • Revenues.

    • Driven by products (iPhone, MacBook, iPad, Apple Watch, AirPods) generating 316,000,000,000.

    • Services (iCloud, other services) contributing 78,000,000,000.

  • Expenses: Totaling 294,000,000,000. Consist of:

    • Cost of products and services: 224,000,000,000

    • Research & Development: 26,000,000,000

    • Selling, General & Administrative expenses: 25,000,000,000

    • Income Taxes: 19,000,000,000

  • The income statement details the components contributing to the final income figure.

Chapter 5: Income Statement Format and Components

  • The official financial statements present the income statement in a vertical (scalar) format.

  • However, for clarity, the content can be represented in a T-format.

  • The income statement, in T-format, includes:

    • Revenue: 394,000,000,000 (on the right side)

    • Cost of Goods Sold (costo delle merci vendute - CMD): Cost of products like MacBook, iPad, etc.

    • Research & Development expenses: 26,000,000,000

    • Selling, General & Administrative expenses: 25,000,000,000

    • Income Taxes: 19,000,000,000

  • The difference between revenue and total expenses results in a positive income (profit).